The average superannuation return is a key figure Australian investors should watch closely when it comes to securing a comfortable retirement.
We work too hard for our sacred, hard-earned capital. It's precious to intelligent investors seeking to grow a sizeable nest egg for when they retire.
In recent years, the S&P/ASX 200 Index (ASX: XJO) and global markets have bolstered the performance of super funds, especially for those with a higher exposure to growth assets.
But how do these returns measure up over the long term? Let's dive into the data.
Average superannuation returns
Before starting, it's important to set some terms. Super funds are typically categorised into either growth or balanced funds. There are variations, but we'll stick to this broad scope here.
Second, we need to define time horizons. For that, I've punched the data to give a view of average annualised returns over several time periods.
Finally, we're talking averages here, and not median returns. They may be higher or lower than the median and not represent the 'middle of the sample', so to speak. Nonetheless, they are critical to know.
Growth funds, which allocate 61–80% of their assets to growth investments like shares, returned an average of 9% over the year to June 2024.
Looking out over a longer horizon, the returns are a little lower. According to data from Superguide, the average returns over a 1 to 15-year period for super funds with a growth bias are:
- 1-year return (as of June 2024): 9.1%
- 3-year annualised return: 4.9%
- 5-year annualised return: 6.3%
- 7-year annualised return: 6.9%
- 10-year annualised return: 7.2%
- 15-year annualised return: 8.0%
Over the past 32 years, growth funds have achieved an average annual return of about 8%. With the consumer price index (CPI) averaging an annual increase of 2.7% during this period, the real (inflation-adjusted) average superannuation return stands at more than 5%.
For reference, Super funds have a mandate to beat this inflation number by 3.5% each year.
In terms of 'high-growth' funds, where 81–95% of funds are in growth assets, 10-year returns averaged 8.4%, and 15-year returns were 9.1% annualised.
A $10,000 investment is worth nearly $37,000 under that last scenario.
Meanwhile, balanced funds, which diversify across assets with a 41–60% split towards growth, have delivered slightly less upside.
What's important to remember is that these funds also contribute a higher portion of income as earnings to the portfolio and have more capital parked in defensive assets.
They also incur lower volatility, with the trade-off being a few points of annualised returns. As such, many adopt this strategy in retirement for capital protection.
Their average superannuation returns are listed below. All are in annualised format:
- 1-year return: 7.4%
- 3-year return: 3.9%
- 5-year return: 4.8%
- 10-year annualised return: 5.8%
- 15-year annualised return: 6.7%
What about the average superannuation balance?
It's good to know the average returns, but as retirement approaches, it's essential to keep track of whether your superannuation balance is on par with national averages and retirement goals.
Data from the Association of Superannuation Funds of Australia (ASFA) suggests that a comfortable retirement requires a super balance of approximately $395,000 by age 55.
For a comfortable retirement at age 67, ASFA advises a balance of $595,000 for singles and $690,000 for couples.
Guidelines exist for what balance is needed at each age to achieve that balance. These figures are based on average historical returns in the market. See the link?
Foolish takeout
The average superannuation fund performance can vary significantly across different investment options.
But it's far more nuanced than that. Super is a complex topic that is highly situation-dependent, meaning it depends on your own circumstances and preferences. That's why options exist.
Still, superannuation has been a major benefit for Australian society over the past few decades, ensuring that just about every Australian has a retirement account that works for them throughout their working careers.
The rest is up to us.
